Most physical gold buyers don’t expect to see the words “bargain gold” and “2011″ in the same sentence considering the last ten years has seen nothing but major gains for yellow metal. We have said many times at The Prospector Site the name of trading dollars for gold is to pay as close to spot as possible, certainly if you are new to buying gold. But the challenge today is premiums on physical gold, and silver too, are rising and to be honest I don’t see premiums reversing anytime soon. Today we look at bargain gold in 2011.
I spent some time researching bargain gold and have to admit my findings are surprising and contradicting. I, like many of you, always believed buying volume was the secret to buying closest to spot price but this is not always the case. Below you’ll see how buying a large mass of metal doesn’t necessary translate into a savings . Combine this with the difficulty when selling and it makes a gold holder rethink bargains. After all, how many gold buyers have $50k to plop down on a kilo gold bar? Let’s break it down.
PHYSICAL GOLD: Currently spot gold price is $1536 per ounce. Unfortunately, you can’t find physical gold at spot so below is spot plus premium prices of several physical gold types.
AMERICAN GOLD EAGLE : 1 OZ COIN: 5% over spot at $1612 per coin.
AMERICAN GOLD EAGLE: 1/2 OZ. COIN: 10% over spot at $845 per coin.
AMERICAN GOLD EAGLE: 1/4 OZ COIN: 12% over spot at $430 per coin.
AMERICAN GOLD EAGLE 1/10 OZ COIN: 15% over spot at $176 per coin.
GOLD BAR 1 OZ BAR: 2.5% over spot at $1575 per bar.
GOLD BAR 10 OZ BAR: 3.5% over spot at $15,898 per bar.
GOLD BAR 32.15 OZ KILO BAR: 3.3% over spot at $51,012 per bar.
What surprises me the most is the best bang for the buck is the 1 ounce gold bar with a premium of only 2.5% over spot price. The larger bars charge around 1% more in return taking more dollars to buy and harder to liquidate down the road. The fractional (less than one ounce coins) coins stayed true to expectations by gradually increasing in premium the smaller the coin. Just for comparison most physical silver sells around 8% to 11% over spot but is increasing.
But the premium side of gold is always passed to new buyer, right?
Absolutely not and here is why. Rethink everything that you believe as true pertaining to gold and silver. Wipe the stereotype of a crusty old man collecting coins and replace with a mental picture of a teacher, butcher, nurse, mechanic, doctor, student, and letter carrier. This new gold buyer cares nothing about rarity, design, or collectible value but is all about trading dollars for a safe haven like gold and silver. This new type buyer greatly affects metal premium because they are not willing to pay 40% over spot for something collectible if the same amount of gold can be bought for 5% over spot. The fact is the number of collector type buyers are declining while the number of safe haven buyers are multiplying. Don’t assume above normal premiums can be passed to new buyers.
NEW YORK (CNNMoney) “Home prices: ‘Double-dip’ confirmed”
“Home prices continue on their downward spiral with no relief in sight,” said David Blitzer, spokesman for Standard and Poor’s. Prices are now down 32.7% from their peak set five years ago. Read it here.
NEW YORK (MarketWatch) — Another fabulous Friday for gold has the bugs bugalooing.Gold signaling hyperinflation?
Commentary: Gold bugs cite lack of faith in paper money.
Sinclair predicts hyperinflation — in language that I won’t even try to get past MarketWatch’s editors! Read it here.
BULLION VAULT: CASEY RESEARCH. Why Today’s Gold Bull Market Dwarfs The Last One – 27 May 2011
“Today, few countries prohibit gold ownership, and a far higher percentage of the world’s population has transitioned out of poverty. Read it here.
FAIR PRICES IN GOLD & SILVER (10:00 am MDT)
ONE OUNCE SILVER BULLION: $43.21
ONE OUNCE SILVER ROUND: $40.56
ONE OUNCE GOLD BULLION: $1613
ONE OUNCE GOLD BAR: $1574